The voluminous 120-page Lombard Finance verdict delivered by Justice Robert Dobson explains that directors are not entitled to rely on suspect internal and external advice when authorising company offer documents.

Justice Dobson today found the four accused - including two former justice ministers Sir Douglas Graham and Bill Jeffries, along with former press officer to the Queen Lawrie Bryant and Lombard chief executive Michael Reeves – guilty of four charges under the Securities Act.

On a fifth count, allegedly untrue statements made on a DVD distributed to investors where Sir Douglas described Lombard’s lending practice as “very conservative”, the defendants were found not guilty

The verdict states Lombard’s directors were not entitled to rely on advice from company managers about the firms' liquidity position or loan repayment projections as reports provided to the board had a history of overstating incoming cashflows.

“Directors are appointed to exercise judgement and that extends to testing the competence of management within areas in which managers are relied upon,” the ruling said.

Repayment forecasts from five major loan groups that dominated 80% of Lombard’s portfolio were increasingly overstating actual repayments, the court heard. “Potential investors would likely question the prudence of the directors’ judgment in continue to rely on the loan mangers in this regard.”

“The extent of loan repayments was critical to [Lombard’s] survival and projections each month for the following month’s receipts dictated whether [Lombard] would be able to meet its commitments.”

A failure to provided an updated cash-on-hand figure when Lombard issued its prospectus was also criticised by the judge as the trend was clearly downwards. The court heard an email from Sir Douglas, sent in December 2007, that dropping cash levels mean the company was “sailing very close to the wind.”

The judge commented: “It was inarguably material to investors that the cash available to the company had reduced markedly in recent months, and was a cause of concern to investors.”

In perhaps veiled criticism of the now-superseded Securities Act, the judge wrote: “In the relevant respects, the law has created criminal liability for what may be no more than a material misjudgment about the accuracy and adequacy of the description of the state of financial health of the company.”

Sentencing for the four convicted directors will take place on March 29